Your Right to Know

Enlarge ImageRequest to buy this photoAn analysis by the nonprofit journalism group ProPublica found that lenders have discovered ways in many states to continue providing short-term loans at triple-digit interest rates.

Five years ago, Ohio dealt what critics hoped would be a death blow to the payday-lending
industry — passing a law to ban short-term, high-cost loans, then crushing a well-funded industry
effort to overturn the law at the polls.

Some stores closed, but many of the hundreds of storefronts did not, and they continue to offer
short-term loans at annualized interest rates well over 300 percent.

When legislators changed the payday-lending law, those lenders that persevered got creative and
offered loans under laws not originally written with payday lenders in mind — the Small Loan Act,
Mortgage Loan Act or as credit-service organizations.

“We didn’t know we were dealing with an industry that was playing Whack-a-Mole,” said Suzanne
Gravette Acker, communications director for the Ohio Coalition for Homelessness and Housing in
Ohio, a leader in pushing anti-payday-lending legislation. “With industries like this, it’s going
to take years. We just have to keep fighting and keep educating.”

Despite a plethora of loopholes being exploited, she added: “I’m not sure the time is right in
this legislature to bring a bill forward.”

These days, Acker’s group finds itself playing defense, so much so that she said leaders are
working to revive the Ohio Coalition for Responsible Lending, a group of more than 200 faith-based
groups, consumer advocates, human-services organizations and labor unions that formed in 2008 to
defend the payday law.

“When the time is right, we hope to whack that mole again,” she said.

Meanwhile, consumer advocates are worried about auto-title loans and legislation dealing with
pawnbrokers and debt-settlement companies. “There are plenty of predatory products out there for us
to fight. We’re doing our best.”

The payday-lending issue has emitted a deafening silence at the Statehouse since 2010, when a
bipartisan bill that would prohibit payday lenders from charging to cash their own checks and limit
other fees passed the House but died in the GOP-controlled Senate.

The only noise has been is in legislative campaign accounts, which have received more than
$465,000 from the payday industry since 2009.

Ohio is not alone — an analysis by the nonprofit journalism group ProPublica found that, in
state after state where lenders have confronted unwanted regulation, they have found ways to
continue providing short-term loans at triple-digit annual interest rates.

Some states have successfully banned high-cost lenders. Today, Arkansas is an island, surrounded
by six other states where ads scream “Cash!” and high-cost lenders dot the strip malls. Arkansas’
constitution caps nonbank rates at 17 percent — but even there, ProPublica found, the industry
managed to operate for nearly a decade until the state Supreme Court finally declared those loans
usurious in 2008.

Critics have long argued that the short-term loans, some with two-week terms, catch borrowers in
a cycle of debt, where they repeatedly need new loans to pay off old ones.

Patrick Crowley, spokesman for the Ohio Consumer Lenders Association, a payday-industry trade
group, said some lawmakers told the industry in 2008 that if there were other ways to make small
loans, they should do it.

“There is a reason the loans are being used — because there is a consumer need for them,” he
said. “We’re supplying these small-term loans because people can’t get it elsewhere. We’re
providing a service.”

If payday lenders disappear in Ohio, Crowley said, many will turn to less-regulated,
more-expensive loans on the Internet.

A case currently before the Ohio Supreme Court could determine if lenders can continue to make
short-term loans under the state’s Mortgage Loan Act, but it appears unlikely to stop the
industry.

Both a municipal court in Elyria and a state appeals court have ruled against Cashland, but even
if the Supreme Court does the same, parent company Cash America said in its latest annual report: “
If the company is unable to continue making short-term loans under this law, it will have to alter
its short-term loan product in Ohio.”

The new federal Consumer Financial Protection Bureau studied the payday industry and in April
didn’t mince words. “For too many consumers, payday and deposit-advance loans are debt traps that
cause them to be living their lives off money borrowed at huge interest rates,” said bureau
director Richard Cordray, former Ohio attorney general and treasurer.

In a sampling of payday loans, the bureau found that nearly half of borrowers get more than 10
loans a year, while 14 percent undertook 20 or more. Payday lenders get most of their money from
these multiple borrowers; the study found that three-quarters of all loan fees generated by
consumers came from those with more than 10 transactions.

The median borrower was in debt to a payday lender for 199 days out of the year, the bureau
said. The median individual income for borrowers was $22,476, and 84 percent of borrowers had
incomes of less than $40,000.

Rep. Richard Adams, R-Troy, chairman of the House Financial Institutions Committee, said he does
not know of any upcoming payday legislation, but he continues to hear from payday lobbyists, which “
causes me to think they may anticipate something.”

Of the 98 lawmakers who voted for the payday crackdown in 2008, only 30 are still in the
legislature. However, some of them are now key leaders.

House Speaker William G. Batchelder, R-Medina, was an outspoken opponent of the payday industry
in 2008, even jointly sponsoring a bill with Democratic Rep. Robert F. Hagan of Youngstown to
significantly limit the interest rates. Lawmakers later passed a separate bill sponsored by
then-Rep. Chris Widener, R-Springfield, now the No. 2 Senate leader, that capped annual interest
rates at 28 percent and limited a borrower to four loans per year.

No lenders offer loans under that law in Ohio, according to the Department of Commerce. Calls to
Batchelder and Widener were not returned.

The debate over payday lending caused significant tension in both Democratic and Republican
legislative caucuses — which, some say, is part of the reason there were no payday bills in the
last two-year legislative session, or yet in this one, which began in January.

“The expectation was, when we passed the bill in 2008, it would take care of the issue,” said
Sen. Jim Hughes, R-Columbus, chairman of the Senate Insurance and Financial Institutions Committee.
“That’s what the testimony was in committee.”

Hughes said he will look closer at the issue and check with the Department of Commerce, which is
unaware of how many short-term lenders are still operating in Ohio.

House Minority Leader Tracy Heard, D-Columbus, said she still thinks payday lenders are doing
what amounts to “extortion.” She anticipated they would adapt to survive.

“I’m not surprised because there has not been a concerted effort or focus on their activities,
or how they responded to what we did before,” she said. “Everything we do isn’t perfect. When we
find there are loopholes, we need to go back and fix them.”

Adams said he respects the statewide vote on the issue in 2008, but he recalled meeting a woman
who was parking cars at the Darke County Fair who told him about needing a small loan to purchase a
battery for her car.

“There’s no place else that we could go to get money quickly,” he said. “I don’t like to see
anybody taken advantage of, but there are a lot of people who need some quick money. If it costs
them $25, so be it.”